Prepared by the Agricultural Staff of Purdue University, Lafayette, Indiana
AGRIC. ECONOMICS
LIBRARY
May 29,   1958
The General Economic Outlook
by PAUL L. FARRIS and R. H. BAUMAN, Department of Agricultural Economics
Business activity will continue to slacken at a decreasing
rate. After the bottom is reached it likely will be followed
by a levelling off period before any appreciable business
upturn occurs, which now seems likely in late 1958 or
early 1959.
Demand for farm products probably will not be greatly
affected unless the recession is more severe and prolonged
than now expected.
The rise in both wholesale and retail prices likely will be
checked.
what has happened?
• Business began to slide in the closing months
of 1957.
• The weakness was reflected chiefly in the start
of business inventory liquidation.
• During the first months of 1958 the recession
deepened: inventory liquidation accelerated, purchases of durable equipment by businessmen declined, and unemployment reached 5.2 million in
March, which is about 7 percent of the civilian labor
force.
• Total personal income was down only about one
percent in the first quarter of 1958 from the previous
quarter. Total consumer spending was down about
one-half of one percent.
• The composition of purchases by consumers
shifted during the first quarter. Spending for durable items decreased about 10 percent from the
rate during the last quarter of 1957, but spending
for services and non-durable items, including food,
was up slightly.
• Prices have continued to rise.
what next?
The current issue is when will the recession "bottom out?" The next question is "when will recovery start?"   And farmers are asking how they
The State farm management tour will be in
Laporte County July 28-29. More details in
next issue.
will fare in the economic environment of 1958.
First let's look at the weak sectors and evaluate
the prospects for improvement. The main one is
business inventories. The other two recessions since
World War II, 1948-49 and 1953-54, were chiefly
inventory recessions, and in each case about a year
was required to liquidate stocks. Each period of
inventory liquidation was followed promptly by
business recovery and expansion.
Inventory liquidation  started  in  late  1957  and
accelerated during the early months of 1958. Unless other areas of weakness develop, the inventory
adjustments are expected to run their course by the
end of 1958, and businessmen will then start accumulating stocks.
The inventory situation cannot, however, be considered outside the total investment environment.
The investment sector is of crucial importance
because changes here have multiplying effects
throughout the economy. The decline in business
expenditures for producers' durable equipment during the first quarter of 1958, for example, meant a
reduction in the sales of these items by machine
tool makers and a consequent weakening employment situation in these industries.
New construction has not yet declined materially,
but the outlook for capital spending by business is
considerably weaker for the rest of 1958 and 1959.
This is the conclusion of McGraw-Hill's 11th annual survey, just completed. The report shows a
decline of total capital spending from $38.4 billion
in 1957 to an expected $34 billion in 1958 and $31.3
billion in 1959.
The decrease will be heaviest in manufacturing.
These figures, however, are anticipations. It is unlikely that actual investment would exceed them,
but there is the danger that capital spending estimates might be revised downward if the recession
should worsen.
Housing construction has weakened in the past
two years. There may be some upturn in housing
but  this  will not have  a  major  influence.    Any